GB: Industrial Production

Mon Jun 11 03:30:00 CDT 2018

Consensus Actual Previous
IP-M/M 0.2% -0.8% 0.1%
IP-Y/Y 2.8% 1.8% 2.9%
Mfg Output-M/M 0.4% -1.4% -0.1%
Mfg Output-Y/Y 3.1% 1.4% 2.9%

Goods producers had a much worse than expected April. Production contracted 0.8 percent on the month, its worst performance since last December and poor enough to reduce annual output growth from 2.9 percent to 1.8 percent, also a 4-month low.

Ominously, the key manufacturing sector was even weaker, registering a 1.4 percent monthly decline, its third drop in a row and the steepest since October 2012. The bulk of the damage was done by metals, where output fell 3.7 percent, alongside other manufacturing and repair (minus 2.7 percent) and machinery and equipment (minus 3.1 percent). However, declines were widespread with nine of the thirteen reporting categories suffering setbacks.

Elsewhere, total industrial production was boosted by a 6.9 percent spurt in the erratic mining and quarrying subsector that was only partially offset by decreases in water supply (1.8 percent) and electricity and gas (2.0 percent).

The April data put the 3-monthly fall in manufacturing output at 0.5 percent, the steepest since the three months ending May 2017. Overall industrial production (0.3 percent) fared rather better but only because of the strength of energy supply. The surprisingly poor figures will cast fresh doubt about a BoE tightening in August.

Industrial production measures the physical output of the mining and quarrying, manufacturing, gas and electric, and water supply and sewerage sectors. Manufacturing is seen as the best guide to underlying developments as the other subsectors can be highly volatile on a short-term basis. Estimates are largely based on a monthly business survey of roughly 6,000 companies.

Industrial and manufacturing outputs are watched carefully by market participants despite the decline in the importance of manufacturing in the UK economy. Manufacturing output is the preferred number rather than industrial production which can be unduly influenced by electrical generation and weather. The manufacturing index is widely used as a short-term economic indicator in its own right by both the Bank of England and the UK government. Market analysts also focus on manufacturing and its sub-sectors to get insight on industry performance.

Industrial production accounts for less than 16 percent of the economy within which the key manufacturing sector is worth about ten percentage points. Total manufacturing is divided into thirteen sub-sectors, ranging from food, drink and tobacco through chemicals and chemical products to electronics and transport equipment. Consequently, this report has a big influence on market behavior. In any given month, one can see whether capital goods or consumer goods are growing more rapidly. Are manufacturers still producing construction supplies and other materials? This detailed report shows which sectors of the economy are growing and which are not.

Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that won't lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.